Taxing the Sun - How New Policies Could Cloud Spain’s Renewable Future

With Spain’s PP party back in power, this sunny, southern European country see a lot less PPAs.

Spain has long been a European leader in low-carbon electricity. The country spent years developing low-carbon energy sources, and as a result generated a plurality of its energy from a mix of nuclear, biofuels, hydropower, wind, solar and other renewables in 2015. For one of the world’s top 20 economies, that is no easy task. Furthermore, Spain should be commended for its work to build a large, diverse and reliable power generation fleet.

According to the International Energy Agency (IEA), after years of good decisions and clean energy investment, the government managed to solve the massive imbalances between the electricity systems’ regulated costs and revenues to encourage renewable energy development. Spain’s electricity market reform created a level playing field for renewable energy development to thrive in the country. The right incentives created a marketplace structured to encourage sustainable electricity’s growth. Unfortunately, the latest election results dampened hopes for those wishing to expand the renewable energy sector in Spain.

According to Greentech Media, while the mid-summer election failed to produce a clear winner, it revealed growing support in Spain for the “Partido Popular” or PP. This is the political party that has created a market difficult for clean technologies to grow by “taxing the sun”. The centerpiece of the PP’s energy policy is to introduce laws that eliminate renewable energy subsidies.

According to IEA, favorable clean energy policies in Spain increased renewable energy capacity by 70% from 2005 to 2012. Until 2012, the structure of Spanish electricity markets was a system of feed-in tariffs and premiums designed to deliver power plants a reasonable rate of return on their investment. However, large debts in excess of 20 billion euros, forced the electricity sector to restructure. In July 2013, the feed-in tariffs and premiums were replaced with an economic remuneration system that allowed developers to cover their investment, operation and maintenance costs. The restructuring also allowed renewables to compete on a level playing field with conventional power plants. This newly structured market guaranteed reasonable a rate of return to all renewables facilities in the Spanish fleet.

In addition, the Spanish government decided to significantly cut subsidies for hard coal production in 2011. An energy source that competed with renewables in the first part of the millennia.

To maintain the growth of the renewable electricity generation IEA recommended Spain take three actions:

Provide clarity to the market on how to achieve Spain’s 2020 renewable energy targets.

Continue to encourage cost-effective procurement of renewable electricity generation through competition between technologies and the electricity market.

Ensure regulatory certainty for the new investments.

The last one being key. After the last election, it’s clear Spain is at a crossroads where renewable energy can either take two steps forward or one step backward. Hopefully, political winds in Spain won’t force the country to take the unfortunate step backward.